Reminder: Health Insurance Sucks for the Rest of Us, Too

While Medicaid expansion and Medicaid funding continue to command the attention of Virginia lawmakers, health care insurance for the rest of us is inching closer to the crisis stage. The cost of the average employer-provided health plan rose 5.2% in Virginia this year, considerably faster than the 3.6% rate for employer plans nationally.

Virginia workers also paid an average of 27% of the total cost of coverage through paycheck deductions, compared to 25% nationally, according to the Richmond Times-Dispatch. Statewide, the total health benefit cost averaged $12,368 per employee. The T-D based its numbers on a 2018 survey released by the Mercer human resources consulting firm.

Those numbers don’t include what employees are spending out of pocket as health plans increase their deductibles. The number of employers offering high-deductible, consumer-directed health plans increased nine percent nationally from 29% to 38% in 2018. Under high-deductible plans, employees must spend thousands of dollars of their own money before insurance reimbursements kick in.

For yet another year, the cost of employer-provided health care exceeds the rate of inflation plus wage growth. The increasing cost of health care represents a material erosion to households’ standard of living. And what are Virginia lawmakers doing about it? Nothing much that I can see.

The Bernie Bro’s answer is to adopt a single-payer health system, or Medicare for All. That would have the virtue of eliminating a huge layer of overhead and red tape associated with private health insurers. But it would introduce a different layer of overhead and red tape associated with the federal government insurer. Overhead savings, if any, would be a one-shot deal. The underlying dynamics of continual cost increases would not change.

Republicans say we should open up the healthcare system to insurance competition across state borders, encourage people to create Health Savings Accounts, and promote consumer-driven health care. All are good ideas, to my way of thinking, but they are only partial and incomplete solutions. They do nothing to address the utter lack of price transparency and the inability of consumers (patients) to shop around for better deals for discretionary procedures. Neither Democrat nor GOP proposals address the reality on the ground: that health care markets are increasingly dominated by hospital monopolies and cartels that protect turf and freeze out competitors. While there is considerable innovation in medicine and technology, there is very little innovation in health care delivery.

There is considerable good thinking in the academic world on how to create viable healthcare markets — or at least there was a decade ago when I studied this matter more closely — but few of them have percolated into the political sphere. Perhaps Virginia could do something totally radical and assemble a conclave to explore ideas for market-oriented healthcare. Something has to give. Current trends are not sustainable.

Interesting to me, as always, is how 30-some other countries systems are heavily sanctioned/affected/controlled by government resulting in much lower costs than us AND despite claims that they “ration” healthcare (like we don’t) – they all live also longer than us.

Yet we continue to say the ‘free market’ … “needs to work”.

The problem is that there really is no true “free market” when we require insurance companies to cover pre-existing conditions – and employer-provided charges the same premiums no matter what age people are. (that’s called community rated).

Beyond that Obamacare dictated that insurance companies could not set annual and lifetime caps on benefits so that basically leaves them with charging higher premiums for everyone and increasing deductibles.

I don’t think “transparency” and competition will “fix” this problem.

but high deductible catastrophic will – in that it will require more skin in the game for “discretionary” spending.

Need to keep in mind that an extremely valuable benefit of high deductible catastrophic insurance is that it DOES protect folks from bankruptcy and make them take a more direct interest in their own health care but as long as there are “networks” and we deal with multiple providers who might be “out-of-network” – not sure what good that transparency really is – even for discretionary procedures. One will be in network but the other is not -then what?

Virginia is actually attacking this problem with the MedicAid Expansion by instituting a variant of managed care where not only all the providers are “in network” but they will share the same medical record AND they do not charge fee for service. It’s fee for the outcome no matter which providers are involved.

Wouldn’t it be a real kick if that approach (which is like European models) results in tamping down the escalation in costs?

There is no free-market model for health insurance. As soon as you outlaw pre-existing conditions and set the same premium price no matter age or health status – the rest is academic.

We’re about to see what the Republicans really want to do about health care since most of them right now are denying that they want to support denial of coverage for pre-existing conditions… Once you make that decision and force insurance companies to take anyone no matter their “condition” any semblance of a “free market” is living is LA LA Land.

Larry, you completely missed or failed to address the crux of what Jim talked about, which centers on decreasing competition:

“Neither Democrat nor GOP proposals address the reality on the ground: that health care markets are increasingly dominated by hospital monopolies and cartels that protect turf and freeze out competitors.”

Your comment is tangential at best to what Jim wrote, and your opinion that competition is irrelevant is not based in any fact. There is a lot of research that shows that 1) market concentration in providing healthcare is high and increasing and 2) markets with higher levels of concentration have higher prices. A recent study referenced in the link I provided above concluded that about 90% of Metropolitan Statistical Areas (MSAs) were highly concentrated for hospitals in 2016 and should have warranted scrutiny because of changes in their concentration levels since 2010.

“That would have the virtue of eliminating a huge layer of overhead and red tape associated with private health insurers. But it would introduce a different layer of overhead and red tape associated with the federal government insurer.” Absolutely right!

The big problems with Medicaid costs are not with the insurance/payment side of the equation but with health care costs and the absence of incentives or controls on concentration to minimize them. Private health insurers do compete, and through their rates (or refusal to serve certain markets at all) they send very effective price signals about the health of the markets they compete in and the actuarial experience of the local pools of customers they are insuring. A single payer system would completely eliminate that feedback, which is about the only source of transparency we have at present when looking at our health care systems. Moreover, while you’re right that the multiple insurer arrangement imposes inefficiencies, we have already invested in the major systems to tame them, such as the Exchanges, and that sunk cost need not be repeated if we don’t mess with what works. The root problem is rising costs due in large part to market concentration among health care providers — not, fundamentally, our current insurance and payment system.

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